Equity Research August 19, 2020 Virtual Conference 2020 ICICI Securities Limited is the author and Key Highlights distributor of this report

We hosted 34 large cap corporates at “I-Sec Virtual Conference 2020” between August 17 and 19, 2020.

S. No. Companies Analyst 1 TCS Hardik Sangani 2 Hardik Sangani 3 ITC Manoj Menon 4 Manoj Menon 5 Sriraam Rathi 6 Ultratech Cement Krupal Maniar 7 Titan Manoj Menon 8 Power Grid Rahul Modi 9 Manoj Menon 10 BPCL Vidyadhar Ginde 11 Godrej Consumer Manoj Menon 12 Dr Reddy Laboratories Sriraam Rathi 13 Vinay Bafna 14 Sriraam Rathi 15 Sriraam Rathi 16 Manoj Menon 17 Manoj Menon 18 GAIL Vidyadhar Ginde 19 Lupin Sriraam Rathi 20 Grasim Krupal Maniar 21 Colgate Palmolive Manoj Menon 22 Tata Consumer Manoj Menon 23 Abhijit Mitra 24 Ambuja Cement Krupal Maniar 25 Hindalco Abhijit Mitra 26 Ansuman Deb 27 UPL Aniruddha Joshi 28 United Breweries Manoj Menon 29 ACC Krupal Maniar 30 Renjith Sivaram 31 Dr Lal Path Sriraam Rathi 32 Astral Poly Technik Nehal Shah 33 KEC International Renjith Sivaram 34 Kajaria Ceramics Nehal Shah

Research Analysts: I-Sec Equity Research [email protected] Please refer to important disclosures at the end of this report

Virtual Conference August 19, 2020 ICICI Securities

TABLE OF CONTENT

Tata Consultancy Services (REDUCE, CMP: Rs2,252) ...... 3 Infosys (HOLD, CMP: Rs968) ...... 4 Asian Paints (ADD, CMP: Rs1,836) ...... 5 Sun Pharma (BUY, CMP: Rs526) ...... 6 Ultratech Cement (BUY, CMP: Rs4,169) ...... 8 Titan (HOLD, CMP: Rs1,124) ...... 9 Dabur (ADD, CMP: Rs495) ...... 11 (ADD, CMP: Rs691) ...... 12 Dr Reddy Lab (HOLD, CMP: Rs4518) ...... 13 Biocon (HOLD, CMP: Rs396) ...... 15 Cipla (ADD, CMP: Rs771) ...... 19 Aurobindo Pharma (ADD, CMP: Rs872) ...... 21 United Spirits (ADD, CMP: Rs585) ...... 22 Marico (ADD, CMP: Rs370) ...... 23 GAIL India (HOLD, CMP: Rs101) ...... 25 Lupin (HOLD, CMP: Rs981) ...... 26 (ADD, CMP: Rs665) ...... 28 Colgate Palmolive (HOLD, CMP: Rs1,422) ...... 29 (ADD, CMP: Rs548) ...... 30 (BUY, CMP: Rs227) ...... 31 Hindalco (BUY, CMP: Rs197) ...... 32 Havells (ADD, CMP: Rs617) ...... 34 UPL (BUY, CMP: Rs500) ...... 35 United Breweries (UNRATED, CMP: Rs1,004) ...... 36 ACC (BUY, CMP: Rs1,429) ...... 37 Voltas (HOLD, CMP: Rs650) ...... 38 Dr Lal Path (BUY, CMP: Rs1,881) ...... 39 Astral Poly Technik (ADD, CMP: Rs1,054) ...... 41 KEC International (BUY, CMP: Rs314) ...... 43 Kajaria Ceramics (HOLD, CMP: Rs408) ...... 44

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Virtual Conference August 19, 2020 ICICI Securities

Tata Consultancy Services (REDUCE, CMP: Rs2,252)

Hardik Sangani (+91 22 6637 7504) [email protected] Price chart  Peak impact of pandemic was felt in the June quarter; some revival in demand is 2,500 being observed as economies are gradually are opening up. 2,200 1,900  As for BFSI, where growth was soft in FY20 (5.2% YoY in constant currency

(Rs) 1,600 terms), Q1FY21 was an inflection point (decline of 4.9% CC YoY). TCS is seeing 1,300 some weakness in the UK geography; however, North America remains relatively 1,000 resilient. Key risk pertains to how companies perform after the effects of stimulus provided by governments globally wean away. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  A large number of mid-sized deals are getting supplanted by ‘urgent’ type of deals, which are relatively smaller, as clients look to focus on keeping their systems ready for a remote-enabled workplace. Clients are also looking to engage with players who can help them with their cost takeout initiatives (relatively larger deal size) and provide end to end solutions.  Primarily focus of companies is on digital imperatives in modernising the front-end, e.g. improving the UI and UX. However, as work becomes more remote and agile, and as digital forms a key offerings anchor, there will be an increased need for clients to transform their core going forward (e.g. for a mortgage company, it will become a key imperative to process loans much faster than earlier)  TCS has been proactive in approaching clients and helping in their cost initiatives. It helps channel clients’ cost savings into newer technologies, which in turn helps TCS to offer better and differentiated end to end value propositions.  TCS has not laid off any employees on account of the pandemic and also has generally not cut compensation. This has helped the company have industry- leading employee retention rates. This will also help fulfil demand when the market improves while competitors who have rationalised their employee base may not be able to quickly ramp up their employee count.  In light of the current pandemic, there has been a big push to perform work more remotely. With utilisation and quality of work not getting significantly affected, clients may be open to greater offshoring going forward, which can also be a structural margin tailwind for TCS going forward.

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Virtual Conference August 19, 2020 ICICI Securities

Infosys (HOLD, CMP: Rs968)

Hardik Sangani (+91 22 6637 7504) [email protected] Price chart  In the past six months, on account of Covid-19 crisis, spends across sectors have 1,100 1,000 come down significantly. However, as clients are looking to save on spending, they 900 are looking for vendors who can help them with their cost takeout initiatives. 800 700 (Rs) 600  As the ongoing pandemic is resulting in increased WFH environment, services 500 pertaining to cloud and cybersecurity are becoming key areas of spending. 400 300  Infosys’ focus on localisation initiatives in the US, building six digital centres have helped it meaningfully de-risk itself from visa-related issues as currently majority of Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 headcount is not visa dependent.  Even in a tough environment, healthy orderbook, recent large deal wins and a robust pipeline give comfort about the company being able to meet its revenue guidance range (0-2% growth in CC terms in FY21).  In light of the ongoing pandemic, there has been a greater push to perform work more remotely. With utilisation and quality of work not getting significantly affected, clients may be open to greater offshoring going forward.  Infosys has a well laid out capital allocation policy with 85% FCF to be returned to shareholders through dividends and buybacks. The company has capacity to use both cash post shareholder distribution and cash in balance sheet to do acquisition which complements its digital strategy. Amongst other things, tuck-in acquisition would be a focal point as it is easier to integrate and targeted digital capabilities can be acquired. (Recent acquisition in space of cloud-based SAAS services providers, design studios have helped Infosys expand its offerings in various geos and segments)  Discretionary costs such as travel shall gradually inch up as economies open albeit at a slower pace.  Onsite utilisation is largely at the same level as Q4FY20. Offshore utilisation was meaningfully affected in Q4FY20 to early Q1FY21; however, it improved later. Hiring is still low as the company already has a bench which can take up incremental demand. It has not resorted to laying-off people due to the pandemic; however, performance related involuntary attrition in normal course and pyramid optimisation exercise continues.  Vendor consolidation is the key trend picking up in current environment as clients look to engage with larger vendors who are amongst industry leaders and have end-to-end capabilities in place to help both legacy and digital part of the business.

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Virtual Conference August 19, 2020 ICICI Securities

Asian Paints (ADD, CMP: Rs1,836)

Manoj Menon (+91 22 6637 7209) [email protected] Aniruddha Joshi (+91 22 6637 7249) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Price chart 2,000  The recovery momentum started in May-June’20 continued even in July’20. 1,800 However, localized lockdowns had some impact especially in South India. 1,600 1,400  The demand from tier 2, 3 towns and rural markets continues to be strong. The

1,200(Rs) 1,000 impact/fear of coronavirus is also relatively lower in these markets. Metros 800 continue to be impacted. There is still lower demand in markets like and 600 Kolkata. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  Value-for-money emulsion products continue to outperform the premium/luxury

products. However, there is now recovery visible even in premium/ luxury paints.  Royal Health shield brand is doing better than most products. APNT has introduced some variants under this brand now.  The demand from real estate developers continues to be weak. Sleek and Ess Ess generate demand (largely) from first time house buyers. There is slower recovery in this market and the weakness in the market may continue for some more time. .  While the demand for paints has increased, Sept-Oct’20 will be crucial months to get right direction of the paint market and consumer sentiments.  The company will continue to focus on low-mid end products. The revenue contribution of putty, primer, value-for-money emulsions is still low compared to overall revenues. There is strong growth potential in these products over next 2-3 years. As these products are growing faster than paints, the difference in volume and value growth will continue for next 2-3 years.  There was lower channel inventory in the months of Apr and May’20. However, the trade inventory is now near the normal levels.  The dealers in metros and tier 1 cities keep very limited inventory as Asian Paints supplies paints to them on a regular basis. However, the trade inventory in rural markets is generally 10-15 days.  The company is now trying to expand reach to smaller dealers too. This will help to service them better and improve efficiencies.  The company has opened 10-11 home décor stores across multiple cities. It plans to add such similar stores ahead. It sells entire range of Asian Paints and also sells some products of other companies through these stores.

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Virtual Conference August 19, 2020 ICICI Securities

Sun Pharma (BUY, CMP: Rs526)

Sriraam Rathi (+91 22 6637 7574) [email protected] Vinay Bafna (+91 22 6637 7339) [email protected] Price chart  Acquired Ranbaxy in 2015. Gradually improved the productivity of the combined 800 business. 700 600 o MR productivity has improved significantly post integration. 500 (Rs) o So the overall profitability has been reasonable. 400 300 o Synergies have been achieved very well. 200 o Profitability for most markets acquired from Ranbaxy would have improved.

Feb-18 Feb-19 Feb-20  Aug-17 Aug-18 Aug-19 Aug-20 EM and ROW

o As a portfolio are reasonably profitable. o Don’t expect a massive delta in the profitability from the current levels.  Investment in specialty business is dragging the profitability. Its loss making at the moment (ex-Absorica and Levulan). o R&D is another expense/investment that is not generating any revenue or profitability for few years. o As revenue from specialty grows, there will be operating leverage from the segment since most of the cost is baked into the business. (Marketing, branding, HR, etc.). o Expect specialty to ramp up in the next few years. o Peak sales from the specialty product would happen in the first 4-5years. o China and EU are entered via partnership. Hence, those costs would be borne by partner. o Japan – Ilumya preparing for launch. Cost will be borne by the company. Front end set up came with Pola pharma. IL-17/23 market is very small at the moment as most patients are treated using the 1st generation or small molecule products. Hence, we need to track the incidence of the ailment. o Rx shifting to Absorica LD remains slow as the pandemic fear keeps the physical interaction low. Will not be able to shift all the Rx by Dec’20 as time is short. o Ilumya has done well. Feedback from doctors and patients is positive. It is doing well in EU and US. No plans to dramatically increase the field force in US. Dusa sales force are not common with that of Ilumya as the indications are different. However, Odomzo can have some synergy with Dusa sales force.  India o Digital initiatives are completely dependent on how the market opens up from the lockdown. o 90% of the field force is active at the moment.

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Virtual Conference August 19, 2020 ICICI Securities

o Some part of the cost saving was due to lack of travelling, branding promotion. All the saving won’t sustain for a long time. o More OPDs are operating at the moment but the patient flow is still low as the pandemic fear is still present. o First few weeks were difficult to adopt, but they are now comfortable with the digital medium.  EU o The business was largely due to Ranbaxy acquisition. Present is UK, Germany, France and other larger markets. o Trying to bring in more differentiated products wherever possible.  Dubai consolidation is being done at the subsidiary levels. It should not impact financials in any manner.  Most of the data requested by SEBI was pertaining to the distribution set up of Aditya Medisales and FCCB issues.  Halol’s relative importance in terms of financial terms has reduced over the past few years. Have 19 ANDAs pending from this plant.  Taro’s pipeline has been built post acquisition. Its quality of products remains differentiated.  General maintenance capex is 1200-1500crs in a year.  50-55% API that is manufactured is utilised in-house. Remaining part is outsourced to companies in India, China and EU. o Changing API vendors is a time consuming process.

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Virtual Conference August 19, 2020 ICICI Securities

Ultratech Cement (BUY, CMP: Rs4,169)

Krupal Maniar, CFA (+91 22 6637 7254) [email protected] Dharmesh Shah (+91 22 6637 7480) [email protected] Price chart  Demand: Capacity utilisation stood at ~60-65% in Jul’20. Rural / semi-urban 5,150 demand is likely to remain strong during FY21; while urban and infrastructure 4,750 4,350 demand are likely to recover during H2FY21 with return of migrant workers. 3,950 (Rs)  Prices: Cement prices have seen seasonal price correction of 4-5% QoQ in Jul’20 3,550 with the onset of monsoon. 3,150 2,750  Cost saving initiatives: UTCEM is targeting 10% fixed costs rationalisation from FY21 by cutting discretionary spends, re-negotiating existing contracts etc which Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 could provide cost savings of ~Rs5bn p.a. (Rs60/te).  For Century assets, management maintained its guidance that ~84% of the production would be transitioned to UTCEM brand (vs 65% in Mar’20) and costs would be in line with existing UTCEM assets (excluding Rs70/te royalty cost) by Q3FY21. EBITDA/te doubled QoQ to >Rs900/te and it still has scope to improve with brand transition and cost levers (declined by Rs105/te in Q1FY21).  UTCEM has divested non-core Binani’s assets in China in Jul’20 at an EV of US$120mn. The transaction is likely to complete by Aug’20 with net receipts of Rs7bn.  Capex guidance at Rs15bn for FY21 on improving cash flow visibility. Commissioning of 1.2mnte grinding unit in East and 2.3mnte Dalla clinker units are delayed by 3-6 months to Jun’21; while 2.1mnte Odisha grinding unit likely to commission by H2FY22E.

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Virtual Conference August 19, 2020 ICICI Securities

Titan (HOLD, CMP: Rs1,124)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected] Price chart 1,550  Sequential recovery in jewellery sales from 70% in June and 101% in July (low 1,350 base, advancement of studded activations; 80% on LTL basis). Studded ratio 1,150 continues to be lower. Increased demands for gold coins and gold bars 950

(Rs) 750 (contribution has increased much higher from 3-4% of sales) with gold as an 550 investment vehicle gaining traction. Management expects overall recovery in 350 150 Q4FY21 to Q4FY20 levels (adjusting for Covid impact) with growth in Jewellery segment. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  Footfalls in stores have declined however they have been compensated by higher ticket size. Further, there has been advancement of wedding jewellery purchases in expectations of further inflation in gold price. Further, new customer walk-ins have increased to ~35% (~30% last year)  90% of stores across all segments have been operational since June.  Titan plans to open ~20-25 stores annually in FY21 and FY22 and reach about 400 stores by end of FY22. Focus will be to open stores in L2 format (better margins, marginally lower ROIC).  Sharp increase in gold prices leads to less price differential between plain gold jewellery and studded jewellery. This results in increased sales of studded jewellery. However, due to decrease in affordability of consumers right now, that shift is not happening.  Watches segment is taking longer time for recovery. Breakeven sales are around 60-70% of pre-Covid sales. Management expects wearable segment (at lower price points) in E-commerce to be future of watches segment.  Eyewear stores take around 3-4 years to breakeven and 3-4 stores are franchised to same person.  Titan plans to launch gold price lock-in scheme (already launched by many competitors) soon where in you can lock-in gold price today and buy gold in future at price lower of either the price on day of actual purchase or the lock in price.  Golden Harvest Scheme maturity happening in month of April and May have contributed to sales in June as they could not buy at that time. However, there have not been any advance redemptions of GHS. Further, enrolment in GHS in June’20 has been around 60-70% of June’19.  Higher cost of inventory to serve different communities in wedding jewellery is more than compensated by higher margins of wedding jewellery.  Studded jewellery ratio in long-term is expected to remain at 30% of sales but on a higher base. However, management expects studded ratio to be impacted in short term.  Titan has gained market share both from unorganised and smaller organised players, according to management.

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Virtual Conference August 19, 2020 ICICI Securities

 Revenue from Tier 3 & Tier 4 cities has increased and has been better than Tier 1 cities as they were least impacted from Covid.  Titan expanded support to franchisees across the segments in terms of 1) Soft loans @4% for 6 months and 2) special grants in Q1 to pay salaries and rent on time. However, they are very immaterial and will not impact Titan’s working capital.  Benefit of Encircle database has helped Titan get sales of c.5bn in jewellery segment from customer of watches segment.  Mia is focused towards working women and CaratLane is more positioned towards millennials.

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Virtual Conference August 19, 2020 ICICI Securities

Dabur (ADD, CMP: Rs495)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected] Price chart  Sales are almost back to pre-Covid levels in most categories except for some 560 520 discretionary categories in personal care (hair care, skin care and out-of-home 480 440 consumption of foods portfolio). Healthcare segment growth is more than 400 compensating for the deficit. MT and CSD channels are still struggling. HoReCa

(Rs) 360 320 segment (10-15% of revenue contribution) is still under complete shutdown. 280 240 Management expects discretionary categories to bounce back by 3QFY21. 200 Management expects low to mid-single digit growth for rest of FY21.

Feb-18 Feb-19 Feb-20  Aug-17 Aug-18 Aug-19 Aug-20 There have been multiple drivers for Dabur’s cultural change from fearful to fearless - technology, transparency, meritocratic culture, agility and nimbleness.  Rural sales is trending up to 50% of revenue (~45% of revenues earlier) driven by capturing downtrading with LUPs and broad product portfolio. Company has extended credit on an exceptional basis in rural markets. Direct reach to rural is currently ~55,000 villages. Plan to increase this to ~60,000 villages by the end of FY21.  Healthcare segment is doing well by gaining share in disposable income of households (management expects this to be a long-term trend). Home Care segment is struggling as sales of air fresheners are being cannibalised by the new range of health and hygiene air fresheners. Skin care and Hair oil are under pressure as they are more discretionary. However, Coconut oil that has nutritional proposition is doing better. Dabur Amla has come back to growth trajectory in July and is gaining market share Management expects higher spends in terms of trade promotions in HPC category. Oral care has been performing well and Dabur has stepped up innovations and also launched Dabur Dant Rakshak at Rs 40 price point to fill the gap in markets where Patanjali is sold.  Competitive pressure in healthcare segment has increased. Management expects, given very low penetration levels of the category, increased activity in the category will drive penetration and finally benefit the category leader i.e. Dabur.  Dabur reaches around 250,000 chemists shops out of 500,000 chemist shops and further plans to increase the reach to 280,000 shops. Dabur also wants to step up innovations to be a one stop solution for all portfolios of ayurvedic products through prescription route. Further, transformation of ayurvedic products to OTC leads to increase in brand turnover as distribution increased by 4-5x.  NPD contribution increased to 5.6% of sales from 1.5% driven by new launches in healthcare and hygiene segment which got accelerated due to conducive demand environment. Dabur is planning to revamp Vatika portfolio with launches of ayurvedic shampoo and is also testing range of hair oils in E-commerce channel.  In international markets, MENA continues to have crude linked macro headwinds along with shrinkage in populations due to expats moving out of the country. North America and Sub-Saharan Africa continue to grow (market leader in relaxers). UK has almost removed all restrictions and should see growth. Greece and Bangladesh are growing while Nepal continues to decline on high single-digit due to lockdowns. Overall management expects flat sales in international market.

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Virtual Conference August 19, 2020 ICICI Securities

Godrej Consumer Products (ADD, CMP: Rs691)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected] Price chart  Consumer trends visible are 1) consumers have paused discretionary 1,020 920 consumption, and 2) shifted to value for money brands 820  720 Management guided towards double-digit top line growth in the medium term

(Rs) 620  Resurgence in HI driven by 1) category tailwinds (consumers’ disease prevention 520 420 mind-set), and 2) gaining market shares from illicit incense stick players. The 320 efforts have been to sustain reason-to-buy (RTB) in the category by educating consumers and innovating. Long-term opportunity in HI is taking it beyond home, Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 non-mosquito portfolio and increasing penetration in rural markets. In HI, however, consumers are currently more concerned towards vector borne diseases, hence non-mosquito portfolio will take time to scale up. GCPL also recently launched HI in Africa, introduced non-gas aerosol in Nigeria. Illicit incense sticks are expected to come back but probability of success is low due to 1) increased import duty for raw material imported from China, 2) availability of similar products offered by organised players and 3) distribution reach of these players getting disrupted.  In Soaps, strategy is to gain market shares by micro marketing strategy in the regions where GCPL has weak presence. Further, Cinthol is focused towards driving premiumisation, Godrej No. 1 soap is focused towards volume growth and newly launched Godrej Protekt is focused towards health. Management believes that consumers do prefer beauty soaps over health soaps and have shifted recently to health (at the expense of beauty soaps) due to coronavirus. Management believes consumers are likely to shift back to beauty positioned soaps in the long-run.  Hair colour and air fresheners are sequentially improving but still struggling due to their discretionary nature.  Strategy in new hygiene products launched is to create differentiation and leverage on GCPL’s distribution for growth. Management said that there is a possibility of new launches not succeeding in these times but the upside is that there has been very little investment done behind these brands both in terms of back-end infrastructure/ manufacturing and ad-spends. However, secondary sales for these new launches have been higher than primary sales. Margin of these new categories is somewhere between HI and soaps and should lead to company gross margin expansion if they scale up.  The focus international markets for GCPL have been Indonesia and Africa. In Africa turnaround is expected with 1) leadership change – appointment of Dharnesh Gordon, 2) GTM strategy – right now distribution is more dependent on wholesale and focus is to increase direct distribution and have some strategic tie- ups with modern trade players, 3) acquisition of right talent, 4) portfolio rationalisation and 5) country presence rationalisation. Indonesia has been a growth driver given better macros in South-East Asian countries. Focus is to increase penetration of HI outside Jakarta and Java islands.  Incentives for GCPL employees have been rationalized towards performance of 1) top-line growth and 2) incremental EVA instead of just incremental EVA earlier.

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Virtual Conference August 19, 2020 ICICI Securities

Dr Reddy Lab (HOLD, CMP: Rs4518)

Sriraam Rathi (+91 22 6637 7574) [email protected] Vinay Bafna (+91 22 6637 7339) [email protected] Price chart  Company can launch 25 products in US in FY21 including injectables. 5,000 4,500  Srikakulam was cleared in May. Almost all plants have cleared compliance. 4,000 3,500  Approvals has increased for most of the generic players from USFDA.

(Rs) 3,000 2,500  Because of COVID-19 lockdown, no USFDA inspection has happened from Mar till 2,000 1,500 now. o USFDA may have figured out the way to conduct desktop or virtual audits. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 o They are prioritizing plants that are under WL/OAI.  Still only 3 large group of buyers and Indian suppliers have increased in US.  Considering the price erosion in US, profitability of the segment has reduced. But investment prudence has helped in generating Return on Investments. o Demand rise with big pharma cutting back on products has created newer opportunities in commodotised products.  Price erosion in US in Q1 was less as compared to previous quarter due to COVID-19.  New launches with all fixed costs in place has created operating leverage lifting profitability.  o Not yet into biologics, only biosimilars. o 2% of sales at the moment. It will grow fast but don’t see more than high single digit contribution over the next few years. o Focus on India and EM o Pegfilgrastim filed in US and EU by the partner Fresnius. o Rituximab ph3 is ongoing. Will take 2 years to complete the trials and file it. May enter a contract with a partner if needed. o Global development for molecules would need a financial partner. As each molecule requires $100mn for development including trials.  Key therapy areas are and Diabetic.  Focusing on nutraceuticals in India. These would be clinically proven products. Launched 1st product (Celevida - diabetic). Will launch another product related to oncology soon. o Trying to in-license more products from global players. o Plan to take them to EM as well.  Filed response to CRL for Copaxone. If there are no queries from USFDA then will be able to launch the product by the end of fiscal or start of next fiscal.  Company would take few more months to respond to Nuvaring CRL.

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Virtual Conference August 19, 2020 ICICI Securities

 Revlimid o Litigation is going on but COVID has delayed the proceedings. o Open for settlement as well.  API o GM may not sustain due to product mix. But it should remain high. o PLI scheme is under review. It requires domestic and greenfield operation. o KSM dependence on China is less than 10% but indirect dependence would be higher.  M&A o Mainly focus on India and EM o US and EU only if the asset is lucrative.  EU o Run rate will sustain. o Expanded to Spain, Italy and France. Launching new products in these areas. o New injectable products would also be launched.  India o Decline was larger due to high anti-infective exposure. o Jul was better than Jun. On path for normal recovery. o Company may launch 15-18 products in the year. o Entire Wockhardt integration has been completed virtually for 2000 people. o 60% of the portfolio is acute and balance is oncology and chronic. Don’t expect the mix to drastically change.

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Virtual Conference August 19, 2020 ICICI Securities

Biocon (HOLD, CMP: Rs396)

Vinay Bafna (+91 22 6637 7339) [email protected] Sriraam Rathi (+91 22 6637 7574) [email protected] Price chart Biosimilars 500 450 400  60% of revenue in FY20 is from ROW markets which remains high growth 350 300 segment with new launches and higher market share in existing products. 250 (Rs) 200 o Mexcio, N.Africa, SE Asia, etc. are the big markets. 150 100 50 o Low cost structure hence can compete in ROW markets very well. 0 o The strategy is a mix between the tender and private markets. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 . Most tenders are 1yr but some are 2year contracts as well. Some markets require pre-qualification before launching. o Trying to setup own base in UAE, S.America, SE Asia.  Biosimilars take 1-2years to reach target market share of ~15%. The market dynamics are different than the generic market. While generics can sustain a 95% value erosion, biosimilars would become uneconomical beyond 70% erosion.  Pegfilgrastim – ~6-7% market share and are maintaining it. Mylan has announced that they were at 16% prefilled syringe market. Brought in additional capacity in Dec’20. Coehrus has launched and is ~20-22% market share apart from other competitiors (Sandoz and ).  Trastuzumab – Amgen launched it at risk just ahead of the launch and have taken ~30% market share.~6-7% market share for Biocon. Expect to take the fair share of the market. o Both products are expected to gain market share over the next few months.  Glargine launch is imminent. Competition is less with Lily having ~30% market share. Don’t expect competition for the next 1yr. Sandoz may enter later. o It remains an important product for Biocon. Company will take some time to ramp up. o Company has enough capacity since it is being supplied across geographies. Whenever necessary demand will first be catered towards more important markets.  Insulin Aspart is expected launch this time next year.  Bevacizumab approval is expected by CY20 end.  Rh-insulin may be launched by next fiscal end. o It is not partnered hence, marketing would be managed by own front end. o Lily has the largest market share in rh-insulin. Novo is the second largest player. o Finished ph1 trials but there is a pathway that would enable waiver of ph3 trials which would help for an approval by next year. Typical approval cycle is 1yr after the filing.

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Virtual Conference August 19, 2020 ICICI Securities

o It’s a $1bn market which is an off the shelf product.  Company aims to become the one of the largest insulin supplier in the world.  Adalimumab would be launched in US in FY24. Etanercept has IP challenges which would push approval to the end of the decade.  Company expects 2 launches every year in developed markets from FY26-30.  Need institutional field force in US to get contracts from large hospital chains which Mylan provides. o Companies use a portfolio approach to sell multiple products o New prescription pricing is at ~15-20% discount to the innovator especially for the acute products. Chronic products such as Humira/Enbrel/Glargine are long term contracts so the discounts are higher.  Canada and Australia are witnessing good traction.  EU success has been limited o Some markets are seeing better traction. 9 markets have double digit market share while it is picking up in France and Sweden. o Over the next 6-12months there company would expand to more markets. o Glargine is launched and is gradually picking up market share. o Trastuzumab is also gaining traction. Company will be launching Pegfilgrastim across EU markets soon. o Bevacizumab and Insulin Aspart will be launched in EU next year. o Etanercept in EU would be launched shortly. Although it’s a partnered product.  China is planned over time but not for the next few years. o It has partnered with Mylan for most products. o Upjohn-Mylan merger would help in the eastern countries as they have a strong foothold. o USFDA approval shortens the approval timeline but the trials are still required.  The biggest risk to the heavy investment in biosimilar business would be any shortfall in commercial execution. Novel Biologics  Itlolizumab is the most advanced product of the pipeline. o Out licensed to Equilium which would do trials for 3 years on more indications such as severe asthma, acute graft vs host disease apart from psoriasis, its primary indication. o It was also repurposed for COVID-19. Conducted a small trial in India with 20 patients. Conducted the larger trial and have patients for 1000 patients where it works very well. It controls the cytokine storm levels. . Equilium will file the pre-IND with USFDA and expect reply soon.  US, Canada, Aus and NZ are markets where Equilium has rights to the product. 16

Virtual Conference August 19, 2020 ICICI Securities

. It could be a huge opportunity and is given to patients that are hospitalized who are having mild to severe symptoms to those who haven’t moved to ventilator.  Insulin Tregopil (oral insulin) o Completed ph3 trial in India. Expect to file for an approval soon. o Product positioning in the rest of the world is still under planning. o Ph1 trials in Germany is being conducted.  BCA 101 o Immuno-oncology drug. IND filed and ph1 has started in US.  BVX-20 o Orphan indication received from USFDA for dermatomyositis o Strategy for the product has not been finalised. Generics  Started the investment mode for the next 2-3 years. Investment would be towards capacity, R&D and building the specialty or differentiated pipeline.  API growth is a combination of demand rising due to COVID-19 related products and some level of stocking up by vendors.  Company will not be participating in the GoI PLI scheme as the products are heavily commoditized. Another requirement is a green field requirement. Syngene/Research services  Macro view remains intact with high demand from big pharma who are looking for cost cutting and biotech firms who need the infrastructure.  $5-6bn worth of work is outsourced. Large part of it is with China (Wuxi and Pharmaron) o India has $1bn worth of market. China has about $2-2.5bn worth of market. o CRO has been growing in the capability with skillset developing gradually.  20-30 services are part of the program.  COVID-19 has slowed down the new contracts.  Manufacturing space o Very little work lands in India for Innovative work. Others  BBIL – Expect to announce additional equity raise before IPO. Over the next 24months. o End game is to have similar holding structure like Syngene. o Funds will be used to by the company towards development. o IPO is needed for value unlocking, financial independence and give PE exit. o Holding company would have the generics segment and novel biologics.

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Virtual Conference August 19, 2020 ICICI Securities

 Expect to have strong OCF but capex requirement is high especially for BBIL. Hence, opting for the equity infusion.  Bicara may follow a US kind of listing so the structure may be different than Syngene and BBIL.  Company remains conservative in terms of M&A. Till date have only bought 2 plants purely from the strategic benefit. Company believes in a good organic strategy. Dossier acquisition and small in-licensing is something that company is open to evaluate.  Voluntis is a leader in digital therapeutics and Insulia is the first such product to receive regulatory clearance to provide automated titration recommendation for all types of basal insulins. The product would create additional value for patients. Company would be open to such partnerships that provide value added services to patients.

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Virtual Conference August 19, 2020 ICICI Securities

Cipla (ADD, CMP: Rs771)

Sriraam Rathi (+91 22 6637 7574) [email protected] Vinay Bafna (+91 22 6637 7339) [email protected] Price chart For Cipla most regions witnessed growth that was exceeding the inherent markets. 880 780  India 680 580 o Multiple growth triggers with season playing out in Q2FY21. (Rs) 480 - Recovery in the hospital segment of growth. 380 280 - Chronic will continue to grow. o Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 Focus on market beating growth.

o Transitioned few products from branded portfolio to CHL. o Trade Gx is ~20% of sales at the moment.  US o Albuterol – QoQ grew strong. Large share of the market is prescribed in generic name. Have taken large share of the Proventil market. Some spike due to COVID usage. May have 10mn dosage capacity and are inching closer to full capacity. - Have a strong cost position on the product so competition wouldn’t affect significantly. - Patient acceptance of the generic is strong. o Filed Advair 3-4months back. Approval would take 12-18months. - USFDA has created sufficient guideline based on previous filers. o Expect more important approvals during the remaining part of the year. o Another litigation product is Qvar. Will work more inhalation products in the latter half of the year. All the initial filings from Indore. o Have more non-respiratory products in the pipeline. Another section of growth is peptides injectables.  Expect 400-500crs cost saving for FY21 against the operating plans devised in FY20 internally. o On ground activity will return hence costs will rise from Q1 levels. o Part of the plan had Advair related expense as well  Out licensing opportunity o In US will focus more on specialty products like Tizanidine patch. o IV Tramadol – equity investment for $35mn. Will require additional amount for the commercialisation of asset. USFDA approval over the next 6-9months. - Will buy the asset if all 4 conditions are met. - $180mn is needed to buy out the remaining part.

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Virtual Conference August 19, 2020 ICICI Securities

- Market access creation and hiring of front end employees would be done closer to commercialisation. - At its peak company would have 70-100 field force for any hospital related asset.  SA + EM o EM cost base and operating expenditure base is not very large. o SA OTC market including Mirren – 30% of the private market. It will continue to grow.  Biologics o Largely shut down the program for development. o In partnership with Roche for biosimilars in India. o Accumulating the portfolio for EM as well for commercialisation. o Need to be amongst the first wave of launches to make enough value on the investment put in for the asset.

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Virtual Conference August 19, 2020 ICICI Securities

Aurobindo Pharma (ADD, CMP: Rs872)

Sriraam Rathi (+91 22 6637 7574) [email protected] Vinay Bafna (+91 22 6637 7339) [email protected] Price chart  US 1000 900 o 150-160 OSD products are under development. Have not seen any major 800 700 pricing pressure at the moment. 600 (Rs) 500 o 50-60 ANDAs run rate to continue for the next few years. 400 300 o Taking all possible steps to grow the base business. 200  ARV Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 o Adoption of DTG combination has increased. o Q4 onwards saw the shift from EFV to DTG combinations. o API is internally manufactured but can be procured locally if capacity is an issues. This can be done at reasonable profitability.  Company has achieved pre-COVID injectable sales of $50-60mn/quarter. o Plan is to launch 15 injectable products in India and reach a quarterly run rate of $75mn by year end. Currently, 40 products are under development. o Injectable products are largely hospital business. o Have limited presence in EU in this segment. Gradually increasing the reach and product basket. o Demand for injectable has improved month on month. Unit 4 is completely utilised to cater to US market. o Depo injections would take 18 months to receive approval. Expect commercial launch in F23.  Biosimilars o Currently have 14 products in development. o Will initiate ph3 trials in two months for the 1st molecule with possible launch in FY22. 2nd and 3rd molecules will be filed in FY21. o EU approval pace for biosimilars is faster than US.  Expect FY21 capex to stand at $200mn. It will be largely utilised for improving capacity, de-bottlenecking and augmentation.  OTC launch of 5-6 products is expected in FY21.  No inorganic approach on API. o The recently announced PLI scheme is focused on scaling up the domestic consumption. Company is reviewing the scheme and products.  Company expects that the revenue mix will have a higher proportion of specialty products in few years.

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Virtual Conference August 19, 2020 ICICI Securities

United Spirits (ADD, CMP: Rs585)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected] Price chart  1,000 Operational status: The business has become fully operational – in terms of manufacturing capacity and off-trade distribution channel. Demand however 800 remains weak 600 (Rs) 400  Company is discussing with other states to allow online ordering and home

200 delivery model – showing them the benefits of such a model being implemented at a few states across the country Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  Cost control measures remain at the fore front of operations till consumer demand normalises  Provisions in 1Q were partially due to COVID-led obsolete inventory. Management highlighted that part of this is getting reversed  No material downtrading has been observed in the past few months. Management did comment that the on-trade channel which is currently locked down has a higher salience of premium products  Management stated that although the category growth numbers are difficult to get in the current scenario, they do not expect any market share losses in 1Q  Competitive intensity: Likely to get lower, similar to most other industries, due to the liquidity pressures being faced by the smaller, regional players  Beer industry has been impacted as occasions for consumption have significantly reduced – on-trade channel is shut and consumers are wary of drinking cold beverages  Profitability is likely to be impacted in the near-term driven by (1) lower franchisee income (partners are badly impacted and therefore USL has given them some concessions), (2) negative operating leverage in manufacturing (USL has m48 manufacturing facilities and hence sizable fixed overheads and likely to be unabsorbed), (3) input costs to witness a normal inflation and (4) will be competitive in A&P spends for rest of FY21 as the markets open up (was low in 1Q due to the demand situation)

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Virtual Conference August 19, 2020 ICICI Securities

Marico (ADD, CMP: Rs370)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected] Price chart  Consumer trends visible are 1) high consciousness for health & hygiene and 450 need to boost immunity, 2) increased demand in ready to eat and ready to cook 400 categories, 3) consumers becoming value conscious and cutting back expenditure 350 on discretionary items, 4) preference for trusted brands, and 5) acceleration in (Rs) 300 online shopping and media consumption. 250 200  Operations for the company are back to almost full capacity in supply chain and manufacturing (with 90-95% of SKUs). July month saw some growth and Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 management expects growth trajectory for the rest of FY21 unless something

drastically changes.  Marico core portfolio volume is expected to grow around 7-8% in the medium- term and overall growth to be in double-digits with the balance growth coming from NPDs. NPD contributes around 3-4% of sales and management expects it to increase to around 7-8% of sales.  Management expects ad-spends for the year to decline by 100-200bps without compromising on impact and SOV - driven by getting some attractive media rates and cutting back A&SP on discretionary portfolio. These savings will be used to increase consumer promotions. Further, management expects Copra prices to be flattish. Management guided to EBITDA margin of c.20%.  Management has seen tailwinds for 60-65% of its portfolio – 1) Saffola (in- home-consumption), 2) Parachute coconut hair oil (upgrade from loose oil) and 3) Low and mid segment of VAHO (downtrading from premium). Balance of the portfolio comprising of premium hair oils and premium personal care products continues to struggle.  Bottom of the pyramid hair oil in VAHO (Nihar Shanti Amla) is benefiting from downtrading. Mid-segment hair oil in VAHO has performed well in Q1. Hair & Care brand is facing pressure from overall weakness in premium hair oils and consumers not preferring the hair & care oil transformation to proposition of fruits oil (has been reversed now).  In Foods, management expects high-single digit to low double-digit growth in Saffola Edible oils as management intutively believes that they have recruited new households (difficult to get consumer research on the current environment). Further, management expects around Rs4.5-5bn revenue (currently Rs 1.8-2bn; expects this to be ~Rs3.5bn in FY21) from healthy foods segment in FY22 by entering into more mass categories like Honey (where MNCs do not have presence).  Management expects around 0.8-1.0 bn sales from health & hygiene portfolio in the current year.  Modern trade (17% of revenues) continues to struggle due to social distancing norms.

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Virtual Conference August 19, 2020 ICICI Securities

 In international business, Bangladesh (~50% of international revenues) is growing well. However, Vietnam is struggling in some personal care products but is expected to bounce back quickly. Management is not bullish for the rest of international business.  Beardo which reported revenue of ~Rs 800mn last year is expected to bounce back and grow double-digit post FY22 due to its extremely premium pricing.

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Virtual Conference August 19, 2020 ICICI Securities

GAIL India (HOLD, CMP: Rs101)

Vidyadhar Ginde (+91 22 6637 7274) [email protected] Aksh Vashishth (+91 22 6637 7386) [email protected] Price chart  Gas transmission and marketing volumes are almost back to pre-lockdown 250 levels. The company’s marketing volumes were 96mmscmd (85mmscmd in India 200 and 11mmscmd outside India) in FY20 and are currently are at 95mmscmd 150 (85mmscmd in India and 10mmscmd outside).

(Rs.) 100 50  GAIL expects gas transmission revenue to surge to Rs100bn over the next 0 five years from Rs60bn in FY20 driven by implementation of pipeline projects worth Rs379bn. Two of these pipelines would be commissioned in FY21 and Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 others by CY23.

 GAIL expects unified tariffs to be implemented latest by Dec’20, when the first phase of Jagdishpur-Haldia-Bokaro-Dhamra pipeline (JHBDPL) is expected to be commissioned. Implementation of unified tariff is essential to ensure that tariff on JHBDPL is not too high.

Capex Likely Capacity Name (Rsbn) Commissioning date (mmscmd) Jagdishpur-Haldia-Bokaro-Dhamra 136 In phases from 16.0 Dec’20 to Dec’21 Kochi-Mangalore 30 Aug’20 16.0 Srikakulam-Angul 30 Jul’22 9.5 Mumbai-Jharsuguda 78 Mar’23 16.5 Dhamra-Haldia 12 Nov’22 7.0 North-East (Indradhanush Gas Grid) 93 CY23 16.0 Total 379 81.0 JHBD capex includes Rs52bn govt. grant; 60% of cost is govt. grant for North-East pipeline Source: Company, PNGRB

 Supply of gas to Ramagundam and Gorakhpur fertiliser plants to begin in FY21. GAIL has started supply to Ramagundam fertiliser plant and the management expects supply of full contracted volumes by 15-Nov’20. Gorakhpur fertiliser plant is also expected to be commissioned and supply of gas to it to begin in the next few months.  Most of the incremental US LNG to be sold to five fertiliser plants expected to be commissioned in the next 12-18 months would be at oil price linked prices. Our perception earlier was that most of the incremental gas sales to new fertilsier plants would be at Henry Hub linked prices, which would have derisked GAIL completely on the volumes so sold. GAIL’s US LNG volumes currently sold in the international market would be sold to these new fertiliser plants when they start operations.  GAIL expects spot LNG price to be atleast over US$4/mmbtu in winter. Spot LNG price, which was at US$2.1/mmbtu in Q1FY21, has surged to US$3.7/mmbtu now mainly due to shutdown of Gorgon plant which is expected to restart in Sep’20.  Petrochemical capacity utilisation is up to 100% now vs 66% in Q1FY21.  Polyethylene (PE) prices were down Rs12,000/t QoQ in Q1FY21 but have marginally improved in Q2-TD.

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Virtual Conference August 19, 2020 ICICI Securities

Lupin (HOLD, CMP: Rs981)

Sriraam Rathi (+91 22 6637 7574) [email protected] Vinay Bafna (+91 22 6637 7339) [email protected] Price chart  Plan was to bring enough products in the US market to compensate the decline in 1500 Metformins. It couldn’t fruition due to plant issues and delay in launches causing

1100 the decline in product opportunities.

(Rs) o Issues accelerated due to buyer consolidation. 700 o Gavis acquisition has also not performed upto mark. Hence, the writeoff. 300 o Specialty portfolio is taking time to grow. Front ended costs are hitting the Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 profitability.

o Metformins (mid-single digit contribution in US). Expect to relaunch Glumetza in US soon. Relaunch of Fortamet would take time.  2 years ago started the cost control initiatives. Most of the cost saving measures were coming from direct cost by improving plant and working efficiency such as freight, idle costs, etc. o These efforts are bearing fruit with successful cost reduction as visible today.  India has been doing well by consistently outperforming the industry. o Continue to invest in the business. o MR productivity, expansion of reach and adding newer therapies remains the focus. o Over the past few years in-licensing deals have done very well. 14-15% of domestic sales. But these products will be going off patent. So working to manufacture internal brands or acquire them from the partner to not lose market share. . Most of the in-licensed products would be in the chronic therapy. o Expect 80% of cost saving of the quarter to reverse with normalisation in coming quarters. Q2 would be similar to Q1 but thereafter it would change.  US o Specialty – Solosec didn’t have a great start because of strategic decisions. . Co-pay program was far too wide to garner benefit. . Got in new head from in Sep’19 that helped relaunched the product and things have started to improve thereon. Have 7-8years of exclusivity. . COVID-19 delayed the recovery. Hence rationalised the field force. . It was costing $12-15mn losses on a quarterly basis. But this would reduce by 40-50% in the coming quarters. Digital media has also helped. . Since utilisation is low with one product, profitability is lower. Trying to add more products which would help this metric. . Expect Q2 to be similar to Q1 but targeting breakeven in FY22.

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Virtual Conference August 19, 2020 ICICI Securities

o Inhalation pipeline is important for growth – ProAir, Fostair, Spiriva, etc. are key products. o RoCE has reduced as the growth has reduced over the past few years owing to lesser growth triggers and growing base. Higher compliance costs also weigh down on the business. o Don’t expect historical profitability to return as market is more competitive. o Albuterol market still remains at 65mn units. Have capacity to take up 20% market share. Will be very disciplined with pricing. . Large part of the market is interchangeable. . Expect to reach peak sales in 4-5 quarters. Product would remain limited competition for a while.  ETR was high due to the legacy structure. As the specialty business would improve the tax rate would start improving.  Divested in Japan as saw challenges in the market for the next 5 years. Valuation that was offered was within acceptable limit, hence it was divested. o Net cash inflow was used to reduce debt.  India or smaller assets in US (specialty) are only being considered for M&A.  Nov-Dec’19 onwards companies have tried to find alternate sources in India for formulations and API. Hence the sector outlook improved.  Biosimilars o Searching for strategic partners as the cost of development is high. It will also help reduce the risks. o Etanercept has been launched by Mylan in Germany and other few markets (Aus, EM, etc.). o Intend to file Pegfilgrastim by end of FY21. Development cost has been drastically reduced with the new guideline from USFDA. o Initiated trials for Lucentis (Ranibizumab) and expect to file it in 2 years.  Completed the CAPAs and awaiting USFDA response for all the plants. Expect Somerset to be inspected earlier since its locally situated.  Long acting injectable would start generating revenue from FY22-23.

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Virtual Conference August 19, 2020 ICICI Securities

Grasim Industries (ADD, CMP: Rs665)

Krupal Maniar, CFA (+91 22 6637 7254) [email protected] Dharmesh Shah (+91 22 6637 7480) [email protected] Price chart  Capacity utilisation: VSF and chemicals plants utilisation gradually improved to 1,400 1,250 >75% in Jul’20. VSF volumes declined 69% YoY to 43kte with realisation declining 1,100 sharply 22% YoY/ 6% QoQ in Q1FY21. Company pushed volumes in exports 950 market to ramp-up utilisation as exports increased 26% QoQ to 38% of total

(Rs) 800 650 volumes in Q1FY21. 500 350  VSF prices: Increase in Chinese inventory levels, lower demand and capacity overhang may continue to impact VSF prices in the near term. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  Caustic Soda prices: Caustic Soda prices (CFR) in Asia eased below US$300 level (4-years low) due to oversupply situation, creating pressure on domestic prices. Chlorine VAP demand remained strong and touched pre-Covid levels during Jun’20.  Focus on cost optimisation and preserving cash: Grasim has initiated various measures to optimise fixed costs and preserve cash. It has reduced fixed cost by Rs2.6bn (down 35% from FY20 quarterly average) with some of the cost savings to be structural.  Capex: The board has approved capex plan of Rs16bn for FY21 (out of remaining capex of Rs49bn) for raising capacities in VSF, apart from ongoing modernisation capex at various plants.  Net debt increased by Rs1.6bn QoQ to Rs31.4bn as at Jun’20-end.

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Virtual Conference August 19, 2020 ICICI Securities

Colgate Palmolive (HOLD, CMP: Rs1,422)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected] Price chart  1Q sales declined 4%, a strong performance given the situation. Management 1,800 1,600 commented that some of this performance could also be driven by pipeline filling 1,400  Company’s strategic priorities: (1) Building strong brands through impactful 1,200 (Rs) 1,000 campaigns, (2) Drive innovation (Colgate Strong Teeth, Charcoal toothpaste, Kids 800 toothpaste; Charcoal and gentle range in Toothbrushes, Palmolive Luminous 600 range in Personal Care and new e-com only products) and (3) driving sustainability  Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 Volume growth: Company targets to grow ahead of the market in the long-term. India’s per capita consumption is just under 200gm versus 500-600 gm in most other geographies (China has >300gm, Brazil ~600gm, US ~500gm) and therefore management believes that there is a huge opportunity to grow. Category volume has been declining even pre-COVID and Colgate, as a market leader, needs to ensure recovery to growth trajectory  Focus areas: (1) Drive core brands (Colgate Strong Teeth, Colgate Active, MaxFresh), (2) premiumisation (Charcoal Toothpaste), (3) expansion of personal care portfolio (Palmolive brand) and (4) e-com channel (Electric toothbrush)  Naturals category: Naturals has now become 25-30% of the toothpaste category and Colgate is under indexed there. The company, through its Vedshakti brand, has been focusing on improving its market share in naturals – had a large distribution drive pre-COVID  Kids segment: Colgate already has presence in toothpaste and toothbrushes for kids and believes that this is a key growth driver. They have also launched a zero line (no preservatives etc.) range which is premium in positioning and is being targeted primarily through the E-com channel  Direct distribution expansion: Colgate had completed its distribution expansion project in 2019  Profitability: Management believes that company gross margin can improve driven by efficiencies and a better product mix. Management also expects to continue advertising expenses at similar levels due to the need to invest behind brands.

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Virtual Conference August 19, 2020 ICICI Securities

Tata Consumer Products (ADD, CMP: Rs548)

Manoj Menon (+91 22 6637 7209) [email protected] Aniruddha Joshi (+91 22 6637 7249) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Price chart  600 Increase in tea procurement prices is likely to impact margins of tea business in 500 India. The company raised prices of its products by ~8% in Q1FY21. It is likely to 400 raise prices again in Q2FY21 or Q3FY21.

(Rs) 300  Global tea prices are relatively lower due to higher tea production in Kenya. Hence, 200 100 the businesses in UK and USA will benefit with lower prices as they procure from Kenya. TCPL has partially invested these savings in brand building initiatives. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  A combined structure of Tata Consumer and consumer portfolio of is now in place. There is only one national sales manager. The merger of distribution network is also underway.  The salt business is ~Rs70bn and 60% category is branded. The company has 30% market share of the overall salt category in India. It is 7x larger than its closest peer. It is changing at-least 33% price premium to its closest competitor.  In salt business, the distribution is extremely important. Also higher scale of production is also important to keep costs lower. All the factors such as manufacturing of salt at Mithapur, , strong distribution and brand have helped salt business to maintain its market leadership.  With merger of distribution network and expansion of direct distribution, the company expects healthy growth in salt business. The benefits of distribution merger will be visible from Q3FY21 or Q4FY21 onwards.  Branded spices category is ~Rs180bn and is growing at 15% per annum. As the organized market expands by ~Rs20bn each year, there is strong potential for organised brands like Tata Sampann.  In International markets, normalization of sales is visible now. Consumers had uploaded the pantry stock and now there will be some de-stocking in H2CY20.  TCPL has worked on multiple initiatives in the international businesses such as (1) improving share of non-black tea, (2) higher investments in brands and (3) cost saving measures. Hence, the profitability of international business has improved in past 2-3 years.  As of now TCPL covers 0.5mn outlets directly. It plans to cover 1mn outlets directly in coming quarters. Also it plans to expand total distribution reach over next three years.  Tata Sampann brand will not be limited to pulses and spices. TCPL will introduce multiple products under this brand. It has recently introduced poha under this brand. It also has some products under the ready-to-cook segment.  Out-of-home consumption of tea is ~35% (Volumes) and ~25% (Value). Out-of- home consumption of coffee is ~10%.

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Virtual Conference August 19, 2020 ICICI Securities

Ambuja Cements (BUY, CMP: Rs227)

Krupal Maniar, CFA (+91 22 6637 7254) [email protected] Dharmesh Shah (+91 22 6637 7480) [email protected] Price chart  Demand: Rural / semi-urban demand is likely to remain strong during FY21; while 325 urban and infrastructure demand are likely to recover during H2FY21 with return of 275 migrant workers. North, Central and East regions remain strong in terms of 225 demand; while West / South remains muted. (Rs) 175  Focus on various cost savings initiatives 125 o Master Supply Agreement (MSA) between Ambuja Cement and ACC is progressing well and the synergy projects are delivering expected supply chain Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 benefits. Company has targeted savings 3-5% of PBT under MSA with ACEM to be shared equally by both by CY21E-end. o Various cost efficiencies programs such as fixed cost rationalization, logistic optimization, warehouse rents renegotiation etc would also lead to structural cost savings. o ACEM plans to improve cost structure further by investing in a couple of WHRS and Renewable energy sources (solar & hydro) at various locations, railway sidings at Rabriyawas, Rajasthan and operationalising domestic Gare-Palma coal block over next two years and enhance use of Alternate fuels further.  Project updates: 3.1mnte clinker line at Marwar Mundwa along with 1.8mnte GU & WHRS is on track and is likely to be operational by Q1CY21E. This will strengthen ACEM’s position in the core markets of North and West and aid volume growth / profitability from CY21E.  Trade mix: Trade mix always remain >80%. Management is targeting to increase VAP volumes to ~20% of trade sales in the coming years.

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Virtual Conference August 19, 2020 ICICI Securities

Hindalco (BUY, CMP: Rs197)

Abhijit Mitra (+91 22 6637 7289) [email protected] Price chart We hosted Hindalco management for one on one and group meetings in our 300 conference. Majority of the discussion expectantly revolved around Novelis. 250

200  Novelis plans to achieve US$35mn out of US$75mn of operational synergies (ex- (Rs) 150 China synergies) with Aleris acquisition. It will be a three year process to achieve

100 the operational synergies. The rest of the targeted synergies can be captured only when Chinese cold mill is commissioned – expected to complete in two to three 50 years’ time. Management is targeting US$250mn of cost savings in Novelis. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 Management also expects to achieve US$450-475/te of EBITDA/te from Novelis + Aleris once things normalise. This does factor in some part of synergies, but not in its entirety.  Management does expect to achieve US$580mn of FCF in FY21 (Novelis + Aleris), similar to what Novelis generated in FY20. Capex for FY21, for Novelis and Aleris combined will be ~US$450mn. Novelis is close to completing the three announced projects in Kentucky, Brazil and China, expects return ratios to improve further once project completes.  Management highlighted the low volumes from JLR which suppressed return profile for European operations. Discussions are on with various other auto players to make up for the lost volumes from JLR.  A lot of questions were targeted to understand the product mix of Novelis post Aleris integration. While explicit guidance was not given, we could gather the following – Auto portfolio in Aleris is expected to reduce majorly; however post expansion in China and Kentucky, auto can still have 20% + exposure in the combined portfolio; specialty will move up from 17% currently, as nearly 20% of Aleris business is specialty; Beverage cans will come down from being at present ~65% of the portfolio to ~ 55-60% of the combined portfolio, while building and solutions will cater to ~ 10% of the portfolio. Aerospace will be incremental in terms of volume contribution. Aleris sold 80-85kte of aerospace flat rolled products last year in a market of 300-350kte.  Aleris has been enjoying a higher benefit of recycling, i.e. scrap LME spreads. It appears what was predominantly a specialty portfolio, is enjoying the benefits of i) limited competition and ii) elevated scrap LME spread for China US trade war.  Management is quite clear that there is no policy on method/timing of repatriation of dividend from Novelis. The first target is to de-lever Novelis operations from current Net Debt to EBITDA of 3.8x to below 3x. There are no plans of additional capital deployment in Novelis till the time the leverage profile is achieved. There are also no plans of listing Novelis as a separate entity as management contemplates whether that can lead to higher holding company discount for listed Hindalco entity. Net debt of Indian operations is ~ Rs 180bn while that of the consolidated operations if ~ Rs 620bn.  Even in India, the focus has shifted to downstream assets. While Covid has delayed the downstream expansion, the same will see incremental capital allocation. The focus in India remains downstream operations where the portfolio is expected to double from 350kte to 700kte. On completion of the downstream value

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Virtual Conference August 19, 2020 ICICI Securities

addition capex, EBITDA/te can reach US$150/TE in the entire 700kte portfolio, from US$75/te in the 350kte at present.  Q2 will definitely see a better margin and volume performance from Novelis , Aleris combined – July has been extremely prospective and Q2FY21 can see Novelis cross US$400/te in EBITDA if things move as per expectations. Aluminium will not see any further cost reduction (down 25% over the past year), however, the trend of inflation in input commodities is not visible yet. Copper operations should improve significantly given higher volumes and better by product prices; treasury gains in other income similar to Q1FY21 may not be visible in Q2FY21.  We did bring up the idea of undertaking an impairment test of the Indian Aluminium assets – as we believe that it can lead to significant improvement of return profile and make Hindalco lot more attractive in the eyes of global investor community. Management, being as proactive as they are, did appear to be in contemplation of the same.

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Virtual Conference August 19, 2020 ICICI Securities

Havells (ADD, CMP: Rs617)

Ansuman Deb (+91 22 6637 7312) [email protected] Ravin Kurwa (+91 22 2277 7653) [email protected] Price chart Lloyds remains as a growth option 1,000

800  No affirmative trends of sustained growth recovery from Covid yet. However, the

600 momentum seen in June has sustained in July. (Rs) 400  Cost cutting measures taken in lieu of Covid relate to lower travel, more online

200 work and less ad spend. Some of these measures can sustain in future.  Havells has a large offline network. This is benefitting the company on terms of Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 reach when the end customer has reduced travelling. The offline to online initiative is also helping the company whereby the orders placed by customers online are routed by Havells to respective nearby dealers.  Lloyds has received positive response from dealers/distributors post the completion of the factory as it underlines strong commitment towards the brand. o Company will have all the four segments of Room AC, , and LED TV under its brand. While TV will be there to only complete a portfolio, washing machine and refrigerator will have own design and positioning. Company plans to come out with an entire range of refrigerator over the next 2 months. There will be an official campaign and launch during Diwali. o The aim of the company (not guidance) remains to achieve a double digit margin in Lloyds in next two years.  There is no big down trading observed among clients considering that the ticket size of products remains low

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Virtual Conference August 19, 2020 ICICI Securities

UPL (BUY, CMP: Rs500)

Aniruddha Joshi (+91 22 6637 7249) [email protected] Price chart  th 800 The company is 5 largest agrochemical player globally. It is growing at twice the 700 rate of global market. Hence, its market share will inch up in next 3-4 years. The 600 company has 14-17% market share in India. 500 (Rs) 400  The disruption in supply from China started three years ago. However, UPL 300 200 procures raw materials from others countries too. If the China issue escalates, it may cause problems to various global companies and not just UPL. The raw Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 material cost will increase for all companies.

 The growth momentum remains strong in India. There is healthy growth in Kharif season as the monsoon is good and there is 10%+ sowing. With higher reservoir levels, there is high probability of good Rabi season too.  While the global GDP growth is impacted, the agrochemicals are classified as essentials in most countries. Hence, there will be limited impact of lockdown on business of UPL.  There is healthy momentum in Europe this year due to better weather conditions and there is higher sowing in North America. UPL can generate healthy growth in these regions in FY21.  The company has slightly different approach to its business. It invests extensively in the field surveys and trials of agrochemicals. This has allowed the company to gain market share from its peers.  The herbicides is a new segment in India. There was almost no awareness of herbicides five or six years ago. With rising awareness and education to the farmers, the demand of herbicides is on the rise.  The company discounts some of the receivables. It helps to reduce the investment in working capital. While discounting has some cost, the company benefits as (1) there are savings in interest cost on working capital debt and (2) there are lower bad debts. The customers (generally) do not default while dealing with banks.  There are multiple synergies to be unlocked from Arysta. The cost synergies will be unlocked in due course but there are revenue synergies also possible due to merger of distribution of UPL and Arysta.  The company also does some outsourcing work for global agrochemical companies. If some agrochemical manufacturing work moves out of China, it will be an opportunity for companies like UPL.  The company indicated that it plans to impair the goodwill as per the accounting standards. However, it will write off the product registrations over a period of five years.

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Virtual Conference August 19, 2020 ICICI Securities

United Breweries (UNRATED, CMP: Rs1,004)

Manoj Menon (+91 22 6637 7209) [email protected] Vismaya Agarwal (+91 22 2277 7632) [email protected] Karan Bhuwania (+91 226637 7351) [email protected]

 Operations: There have been gradual opening of businesses from May 3. Outlook is still very uncertain.  Excise duty hike: Some states had introduced COVID taxes higher than usual but from those states, Delhi and Orissa have rolled back these tax hikes.  Cash position: Increase in net debt of Rs1.2bn as compared to March’20 due to weakness in performance; working capital is well under control in terms of inventory and payables. Receivables has seen good collections, however, 2-3 states are lagging (due to low recovery rates in those states).  Mild beer has performed well in some regions; however, Strong beer has been impacted. Craft beer consumers continue to mature with taste profiles and choices, which helps the overall industry to expand.  Non-alcoholic beverages witnessed 3% growth driven by E-com and home delivery gaining traction as well as continued operations even during lockdown. Radler and Heineken 0.0 are also doing well as taste is accepted by consumers. Internationally, non-alcoholic beverages have healthy share of 5-10% of total beer market in some European markets. Therefore, potential is there but current revenue contribution for India is below 1%.  Input costs: Situation is better now as compared to last year when there was high inflation in both barley and glass. 1Q had flat prices in new glass bottles and malt. Management expects some softening of prices going forward with roughly 10% reduction in barely and low inflation in glass. New glass usage is 33% of contribution and remainder is recollected glass bottles. Strategy is to maximise the portion of glass collected back.  Wheat beer: Internationally also there is limited consumer demand and occasion for this segment. Management does not see this reaching 10% of the segment. UB is more focused on making sure of its presence in the segment.  Inventory write-off: No write off as of yet but had entered the COVID period geared for a big season. Lot of it has been sold, depleted, etc.  Learnings from global: India is yet to open on-trade while global markets has seen on-trade opening up with consumers showing confidence in venturing out. These are on the back of good practices – social distancing, register on apps, mandatory reservations, etc.  Cost savings: Discretionary spends will remain compressed till demand improves, A&P has been scaled back in 1Q and management is ready with plans as things improve. IPL will be a crucial event and management will see how things go during that.

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Virtual Conference August 19, 2020 ICICI Securities

ACC (BUY, CMP: Rs1,429)

Krupal Maniar, CFA (+91 22 6637 7254) [email protected] Dharmesh Shah (+91 22 6637 7480) [email protected] Price chart  Demand: Cement demand was broadly flat YoY in Jul’20. However, it has 2,000 1,800 weakened little in Aug’20 with the onset of monsoon. Demand continues to remain 1,600 strong in East and Central region. Management expects demand in West and 1,400 South regions to improve led by pent-up demand once urban and non-trade (Rs) 1,200 1,000 demand recovers in coming quarters. 800  Cost savings initiatives Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 o ACC has witnessed nearly Rs2bn cost reduction in other expenses in Q2CY20 and expects Rs500mn cost reduction likely to be structural (Eg. Warehousing cost, rent, third party services etc.). Discretionary spends (like ad spends, conveyance, travelling etc.) are likely to normalise by Q1CY21 with volume recovery. o ACC launched project ‘Parvat’ to improve cost structure and unlocking efficiencies. The Company is targeting Rs200/te cost savings and has already achieved savings of Rs100/te under said scheme till date. o Company has targeted savings of Rs2.5bn under material supply arrangement (MSA) with ACEM to be shared equally by both by CY21E-end. It has already achieved savings run rate of Rs150mn p.m. (1/3rd through network optimization and balance through incremental volumes) as volumes have tripled under MSA which is to be shared equally between the company.  Value added products (VAP) contributes ~20% of trade volumes and management targeting it to increase to 1/3rd of trade volumes in next 3-4 years. Company enjoys incremental pricing of Rs25/bag and incremental contribution in the range of Rs10-15/bag.  Project update: ACC’s 1.4mnte grinding unit at Sindri may go on stream by Mar’21; while 4.5mnte expansion may be delayed by 6-9 months to H2CY22E owing to Covid’19 pandemics. Total project capex for 3mnte clinker unit at Madhya Pradesh and 5.9mnte grinding unit in Central and East regions stood at Rs30bn. Project capex for CY20 likely to be at ~Rs4bn in addition to maintenance capex of Rs2.5bn.  Cash flow utilisation: ACC has net cash of Rs47bn as of Jun’20. Management evaluating a various option for utilisation of the same like any inorganic opportunities, higher dividend payout etc.

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Virtual Conference August 19, 2020 ICICI Securities

Voltas (HOLD, CMP: Rs650)

Renjith Sivaram (+91 22 6637 7340) [email protected] Vipin Goel (+91 22 6637 7397) [email protected] Price chart  Overall touch points in India for Refrigerator and washing machine are 45,000. 800 700 Voltas is targeting 10% market share for which they are targeting one-third share in 600 touch points at 15000-1600 500

(Rs)  400 Phased manufacturing program (PMP) is about increasing import duty in a phased 300 manner on complete finished products. Hike in custom duty may go up to 30% in 200 next 5 years and will still be within WTO guidelines of 35%-40% hike. However, due to absence of any manufacturing ecosystem, it will take time for local players Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 to build manufacturing capabilities, hence government has given sometime before

increasing the custom duty on components like compressor, controller, motors and PCB.  For controllers and motors, OEMs can be developed in India. However compressor will continue to be sourced from China in near term given its complex technicality and high expertise  GMCC is coming up with a compressor manufacturing facility in India which was expected to start commercial production in FY21 and has delayed by six months due to Covid-19  Import duty is increase expected in 1-2 months and PLI expected in 3-4months. Benefit from PLI will take 6-8 months to accrue during which the cost will increase for the industry  Performance Linked Incentive (PLI) scheme is expected to start initially for PCB/ chips and laptop manufacturing. AC and electronic units are expected to come in later (within next 6 months). If these players set up manufacturing facility in India, it will benefit the AC players in terms of inventory holding cost and logistic costs due to localised sourcing.  Project segment has been more susceptible to pandemic than product business and has been impacted from availability of labour, productivity, impact on collections etc. This will lead to increase in costs of project business For project business, management expects order intake to reduce drastically and expect the order intake volume and value to get impacted in near term.  On Voltbek, company is expecting 3 years to breakeven and further funding will be needed for brand building which will largely drive upon Voltas brand. Target investment in JV remains at Rs10bn of which Rs3.5bn has been done  Engg. product segments margins were high in Q1FY21 as the business largely included revenues from sale of service contracts which are high margin, however sale of products in textile machinery (where LMW is focussing on expanding post- spinning) and Mining was muted.

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Virtual Conference August 19, 2020 ICICI Securities

Dr Lal Path (BUY, CMP: Rs1,881)

Sriraam Rathi (+91 22 6637 7574) [email protected] Vinay Bafna (+91 22 6637 7339) [email protected] Price chart  Initially there was a sharp fall in the business in Q1. COVID-19 tests started 2200 2000 contributing Ma’20y onwards. Regular business recovery began Jun’20 onwards. 1800 Company expects full recovery in the regular business over the next few months 1600 1400 (Rs) 1200  Q1 also had the benefit of some pent up demand and hence it is not entirely 1000 reflective of the actual business performance. 800 600  Company expects COVID-19 testing to reduce in the coming months as GoI builds its own capacities. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  Pick up points have seen growth month on month and have largely regluarised.  Home collection has done well in the current quarter as more and more patients have consciously opted for it in the pandemic environment. Another benefit was the closure of smaller local labs due to COVID-19. Franchisees are also witnessing a rise in home collection and fall in walk in patients. Margins on home collection patients are similar to walk-in patients. Revenue contribution from this segment has increased significantly from ~6% in pre-COVID times.  Online diagnostics remains sub-scale at the moment. Despite easy prescription generation via online portals, most of the pilot programs for the online aggregators to move to full service programs have not been encouraging.  Company is supporting its franchisees in the current challenging times by supporting digital promotion, providing extra manpower where possible, extending their credit days, etc.  Company continues to explore inorganic opportunities for useful cash utilisation and business expansion. However, level of consolidation has been lower than anticipated in the current times. o While company is focusing on increasing its presence in Western and Southern regions of the country, it is also searching for more areas to open in the established areas. o Rationalisation is an important aspect in expansion but for labs scale up takes time. Hence, company is not looking at shutting down labs at the momet. o Delhi remains as an extremely competitive market and company is taking steps to increase its market share.  Consumer behaviour has been encouraging towards preventive healthcare as focus has shifter to higher level of hygiene due to the fear of pandemic. Customers are wanting better quality of tests at more competitive prices, hence are trying to engage with larger and more organized players.  Company expects COVID-19 testing to become a large part of the product basket. However, nature of test remains uncertain. Although RT-PCR remains the gold standard, the demand for anti-body tests are on the rise. Rapid testing may be useful to conduct surveys but is less accurate than the RT-PCR tests.

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Virtual Conference August 19, 2020 ICICI Securities

 Margins in COVID-19 business are volatile. COVID-19 test are witnessing a drop in reagent costs but the fall in prices in commensurate to it. Even if the testing cost reduces the cost of servicing remains at normal levels. Hence, don’t expect high profitability from these tests.  Company is open to developing a collection centre network. However, there is a hesitation by in converting labs to collection centres as the system becomes difficult to manage. Company doesn’t want the labs to increase routine tests as quality gradually deteriorates.  Price remains the key USP for any pathology tests. If company is able to reduce costs without sacrificing quality it will attract larger patients. Larger players have the benefit of scale to manage costs despite increased inefficiencies.

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Virtual Conference August 19, 2020 ICICI Securities

Astral Poly Technik (ADD, CMP: Rs1,054)

Nehal Shah (+91 22 6637 7235) [email protected] Jigar Shah (+91 22 6637 7416) jigar.shah@@icicisecurities.com Price chart Standalone pipes segment 1300

1100  Demand for pipes continues to remain strong from smaller cities and towns. The

900 demand is coming from both new construction and replacement demand as well.

(Rs.) 700  Tier 1 & 2 cities have started opening up a bit with replacement demand picking up 500 while construction demand remains muted. New construction demand may take 300 couple of quarters to pick up  Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 Industry consolidation in both PVC and CPVC pipes helping top branded players to grow better than the competition  Unorganised players continue to lose market share driven by a) limited availability of PVC resin creating shortage of material. This will be further accentuated with US based large supplier Formosa shutting down one of the plants recently; and, b) liquidity driven issues.  PVC prices are now higher than the pre-covid levels after recovering fully from the fall witnessed in Mar and Apr’20.  ASTRA is expecting inventory gains in PVC Pipes segment in Q2FY20 with the PVC prices trending higher and the same being passed on to the trade.  Inventory at dealer level still remains lean (lower by at least 50% YoY) as demand scenario remains uncertain.  Pent-up demand due to lower inventory levels in the trade could be seen in Q3FY20.  CPVC prices have remained stable as demand continue to remain muted due to slowdown in new construction. However, players have taken some price hike to cover up the extent of INR depreciation seen in last couple of quarters.  In CPVC pipes segment consolidation is gaining momentum post imposition of anti-dumping duty on Chinese and Korean imports.  People do continue to import from countries like UAE to evade anti-dumping duties imposed by India on imports from China/Korea.  The loyalty program is introduced to award influencers like distributors, dealers and plumbers. The program is yet to be launched across India and is targeted to be launched pan India by Dec’20. The company expects the additional costs from this loyalty program to be compensated through incremental revenues generated through the scheme.  DWC pipes segment has been impacted the most on account of Covid-19 breakout. However there is slight improvement seen in this business with the company seeing better inquiries and also opening up dealership for the product with its existing dealers. ASTRA expects H2FY21 to be better for this segment compared to H1.

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Virtual Conference August 19, 2020 ICICI Securities

 East India is a very good market dominated by one player and hence its a great opportunity to take market share. Logistic cost has been very high for ASTRA (6% to 18% of sales) to cater to this market.  East India plant is likely to be operational by H1FY22E. This will increase competitiveness in the zone thereby likely to aid better growth prospects there.  It is looking to generate revenues to the tune of Rs2-3bn in 2-3 years in East India once the plant becomes operational.  The company has tied up with European companies for the valves business. It has already launched two variety of valves for the plumbing segment. The margins in the segment are expected to be much higher than the current margins in the pipe business. Adhesives segment  Demand has picked up in adhesives segment which led to 26% YoY increase in sales for the month of Jul’20.  Despite lot of holidays in Aug’20 and monsoon heavy month pan India, the run-rate for adhesives segment seems decent.  ASTRA has covered large part of the portfolio in adhesives and construction chemical space.  The company do not expect any immediate product launches. However, few products are in pipeline which could be launched over the next few quarters.  R&D expenditure in adhesive business likely at Rs20-30mn annually.  ASTRA’s cyanoacrylate brand ‘ResiQuick’ has started doing well post the recent change in its distribution network.  The company has launched major SKUs in the PVA segment. The quality is well accepted by the trade and the network expansion is underway.  While the company has moved on from a 3-tier distribution to a 2 tier one, the addition of distributors is still a work in progress.  Support to Dealers and distributors has always been the company’s priority. For past 5 years, channel financing has been promoted. A lot of work is being done at distributors level. New schemes such as the Ghar Wapsi scheme is recently launched to bring back the lost distributors.  ASTRA does not want to miss on this year’s IPL branding opportunity. The company is likely to spend 50% of the last year’s spend on IPL tournament but expects viewership to be higher due to the current pandemic. The company has sponsored two teams this year – KKR and MI.  With the recent systemic corrections and the new product launches, adhesives business is likely to grow at 10-15% CAGR over the next few years.  Company intends to achieve EBITDA margin of 16-17% in the adhesive business in next 2-3 years.  Considering its strong CF generation in future, ASTRA would continue to scout for companies (in pipes or adhesives or any synergistic segment) which has potential to provide consistent 15-20% return ratios over the long term.

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Virtual Conference August 19, 2020 ICICI Securities

KEC International (BUY, CMP: Rs314)

Renjith Sivaram (+91 22 6637 7340) [email protected] Vipin Goel (+91 22 6637 7397) [email protected] Price chart  The company has Rs197bn of order book outstanding and L1 in Rs45bn worth 500 orders (includes two orders in MENA, and an order in Africa) 400  KEC has placed overall Rs250bn-300bn worth bids expects to participate in 300 (Rs) Rs300-340bn worth orders in next two months largely led by a healthy international

200 order pipeline  100 Green Energy corridor order pipeline of Rs140-150 is intact where EPC portion is expected to be Rs95-100bn. Rebidding of tenders worth Rs95-100bn will be in Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20 Q2FY21 and awarding is expected in Q3FY21

 For SAE, execution of three large projects continue and Brazil has been hit due to Covid related slowdown and 25% currency depreciation, which will lead to reduced revenue contribution from the geography  In SAE, size for the substation and transformers auction which is scheduled in Dec’20 has reduced from USD2bn to USD800mn (number of bids have reduced by 50%). Total opportunity size however has not been impacted. Currently SAE contributes Rs6.5-7bn to L1 orders.  In metro, company recently won an extension order worth Rs1.5bn on Kochi metro and have bid 2 bids worth Rs6-7bn  Company has been able to book orders at low raw material prices, where benefit will be realised once these projects start getting executed. However, the increase in margins may be offset by additional costs related to adherence of cvoid-19 safety norms. Most of the domestic contracts have price variation clause while for international orders, company builds in a buffer and commodity are hedge at the time of order awarding  Management expects the increase in project cost resulting from adherence to social distancing and other safety norms will be offset by cost optimisation from mechanisation of Management is purposely not ramping up labour levels beyond the current 80% levels due to efforts on mechanisation e.g. hiring capital equipment like cranes, bob cut machines  Civil segment working capital requirements are lower than T&D segment and company sees limited competition in civil and water segment, given banks have been cautious on lending and issuing BGs to small players  Have bid for Rs5bn tenders in SEBs and is expecting to bid for additional Rs20bn orders in next couple of months. States which are seeing activity include – Tamil Nadu, Andhra Pradesh, Odisha, West Bengal and Bihar. Foresee pipeline of Rs30- 50bn every year from SEBs  Regarding the recent anti-China stance by government, KEC used to import substation equipment from China which will now likely be imported from other European players like ABB and where the cost is expected to be 15%- 20% higher. Although it will be not impact the project under execution, since the cost of projects will go up for developer, order intake may be impacted.  Company is targets to reduce net working capital from 120 days currently to 100days (including acceptances, which have been Rs10bn for past few years)

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Virtual Conference August 19, 2020 ICICI Securities

Kajaria Ceramics (HOLD, CMP: Rs408)

Nehal Shah (+91 22 6637 7235) [email protected] Jigar Shah (+91 22 6637 7416) jigar.shah@@icicisecurities.com Price chart  KJC expects 85-90% capacity utilisation levels and sales at 80%+ in Q2FY21 800 compared to corresponding quarter of previous year (Q2FY20). 700 600  Collections remains robust. Company has not opted for any channel financing 500 (Rs) scheme. 400 300  Channel inventory continues to remain lean and more and more dealers are 200 moving towards cash and carry model as confidence in the market remains low at present with intermittent lockdown being announced in different cities. Feb-18 Feb-19 Feb-20 Aug-17 Aug-18 Aug-19 Aug-20  Company balance sheet remains strong with impressive cash flow generation. KJC has recently invested Rs1.5bn in banks FD’s.  Rural areas and tier 2 & above cities continue to drive demand for bathroom solutions while demand from tier 1 cities remain subdued with limited activities.  Cities like Delhi, Bangalore and Hyderabad have started to open up.  Cities like Mumbai, Pune, and Kolkata still remains impacted.  Majority of the cost cutting initiatives taken by the company are likely to be reinstated post Sep’20 – particularly the employee costs.  Direct A&P expenses have been cut down from Rs400mn to Rs200mn this year. Spends related to dealer showrooms are likely to be down by 50% from Rs250- 300mn to RsRs120-150mn.  Overall cost savings to the tune of Rs600-650mn are likely in H1FY21.  KJC’s retail sales proportion has increased to 90% vs. 70% in pre-covid environment largely due to subdued activities in new construction activities.  KJC is not looking at any capacity expansion in any of its product segments in FY21. Two year rolling capex likely at Rs1-1.5bn (largely maintenance capex driven).  Faucets is operating at 100% levels currently and company expects bathware segment to grow at 20-25% over the next 2-3 years.  JVs are likely to break-even by end-FY21 as it is targeting to recoup Q1 losses incurred by its JVs over the next 3 quarters.  The only business which is likely to run into loss in FY21 is plywood business. It is likely to incur loss to the tune of Rs60-70mn in FY21.  Currently out of 675 plants in Morbi, 400-425 plants are only operational due to issues related to labour and other financial matters.  Working capital days in near future will go up as company is expected to ramp-up production from Q1FY21 levels.  Gas prices in North stands at Rs25/SCM (vs. 30/SCM YoY) while it is at Rs29/SCM in Morbi down from Rs31/SCM YoY.

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Virtual Conference August 19, 2020 ICICI Securities

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New I-Sec investment ratings (All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

ANALYST CERTIFICATION I/We, Manoj Menon, MBA, CMA; Vismaya Agarwal, CFA, BTech, PGDM; Karan Bhuwania, MBA; Krupal Maniar, CA, CFA; Dharmesh Shah, CA; Hardik Sangani, CA; Abhijit Mitra, MBA (Finance), BE; Ansuman Deb, MBA, BE; Ravin Kurwa, CA; Vidyadhar Ginde, (A.C.A. GRAD.CWA); Aksh Vashishth, MBA; Nehal Shah, CA; Jigar Shah, CA; Aniruddha Joshi, CA; Renjith Sivaram, BE, MBA (Finance);Vipin Goel, MBA, BTech; Nishant Vass, MBA (Finance); Pratit Vajani, MBA; Sanjesh Jain, PGDM; Sameer Pardikar, MBA; Sriraam Rathi, CA; Vinay Bafna, MBA; authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. 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